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TECHNICAL ANALYSIS


PENDY'S PICKS: August 23, 2012

08/23/12 09:37:26 AM
by Donald W. Pendergast, Jr.

The .OEX starts to see more intraday volatility, seeking out a likely pathway for its next tradable swing.

Security:   .OEX, RTN, S, UPS, HAL
Position:   N/A

The .OEX (Standard & Poor's 100) finished Wednesday's trading session at 649.56, closing up by 0.05%; the index tested support near 646.92 during the day but managed to end the day very close to where it opened. At significant bearish trend reversals, it's not uncommon to see increasing volatility before the major part of the move commences; with the .OEX expected to top no later than September 4, 2012, this is a time to be exercising caution if you have open long positions. It is possible that the .OEX and .SPX will make another run at Tuesday's high of 656.10 before capitulating, so be prepared for just about anything during the next week or so.

Figure 1 shows us the strongest four-week relative strength (RS) performers in the .OEX; Cisco Systems (CSCO) is still handily outpacing the .OEX, and Apple, Inc. (AAPL), has now taken over second place on this top RS list. Sprint Nextel (S), while still on this list, has just fired a sell setup signal and is looking extremely vulnerable -- more on this setup later in this edition of Pendy's Picks. For the first time in a month, there are no oil exploration/production or oil services stocks on the list; Halliburton (HAL) has also fired a short sell setup signal. Freeport-McMoran (FCX) is still outperforming, but be aware that the longer-term cycle projections are suggesting that this stock could be trading below $20 by the spring of 2013.


FIGURE 1: STRONGEST COMPONENTS. The 10 strongest S&P 100 (.OEX) components over the past month, as of Wednesday, August 22, 2012.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Figure 2 is a look at the weakest four-week relative strength performers in the .OEX; Boeing (BA) is looking vulnerable here, as its money flows are beginning to falter. Consider using weakness to capitalize on potential drops down to the next heavy support level near 71.00.

Wal-Mart (WMT) appears to be in the early stages of a bearish trend reversal; look for a minor swing higher, followed by a sizable drop to at least 67.00 once the .OEX and .SPX finally head south in a big way. We still see Bristol Myers (BMY), Merck (MRK), and Eli Lilly (LLY) here on this weak RS stock list; if the Republicans take the White House this autumn and make good on their intentions to dismantle Obamacare, will this help the share prices of these companies or harm them? That's a good question, one we should all be thinking about in a country that now has a strange mix of socialism and capitalism -- a dying middle class, and welfare for the super rich and poverty-stricken are some of its most notable elements.

FIGURE 2: WEAKEST COMPONENTS. The 10 weakest S&P 100 (.OEX) components over the past month, as of Wednesday, August 22, 2012.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Figure 3 are the S&P 100 components giving RMO swing sell setup signals; 9% of the .OEX components issued new RMO swing sell signals on Wednesday. There were no new swing buy signals. Sprint Nextel (S) triggered a shirt entry on a drop below 4.88; the stock is gradually being distributed by the smart money, with bearish price/money flow divergences evident on two separate time frames.

Halliburton (HAL) goes short on a drop below 34.56; its positive volume index (PVI) has gone flat, while its negative volume index (NVI) is still rising. Technically, this indicates a possible consolidation under way; when either of these indicators starts declining will be a good indication that a tradable swing is under way.

When both indicators are trending higher/lower is when you have the best confirmation of a powerful trend in progress. Raytheon (RTN) triggers a new short on a decline beneath 55.70; this defense contractor's shares are also under distribution and should decline noticeably over the next four to six weeks. RTN has good support near 48.50 to 49.00.

FIGURE 3: SWING SELL SIGNALS. The S&P 100 (.OEX) components issuing RMO swing sell signals at the close of trading on Wednesday, August 22, 2012; 9% of all .OEX components fired swing sell setup signals during the session, with no new swing buy setup signals issued.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Among the exchange traded funds (ETFs) that Pendy's Picks follows were three sell setup signals to report on Wednesday -- the iShares Telecommunications (IYZ), iShares Global Consumer Staples (KXI), and Semiconductor HOLDRs (SMH) (Figure 4). IYZ went short on a drop below 23.94, KXI was a short on a decline beneath 73.06, and SMH went into short mode if 33.14 were taken out. IYZ and SMH looked like great medium-term shorts at this juncture; their anticipated declines will also help pull the .OEX and .SPX lower and get the selloff going in a big way.

FIGURE 4: SWING SELL SIGNALS. The exchange traded funds issuing RMO swing sell signals at the close of trading on Wednesday, August 22, 2012; there were no new swing buy setup signals issued.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
The .OEX showed some intraday volatility and indecision during Wednesday's session; with only nine trading days left until the .OEX and .SPX are expected to embark on a noticeable correction, things could be very interesting over the next week or so as the big players in the market start making big bets -- both bullish and bearish -- in anticipation of what should be a very memorable September in the US stock markets. Trade wisely until we meet here again.



Donald W. Pendergast, Jr.

Donald W. Pendergast is a financial markets consultant who offers specialized services to stock brokers and high net worth individuals who seek a better bottom line for their portfolios.

Title: Writer, market consultant
Company: Linear Trading Systems LLC
Jacksonville, FL 32217
Phone # for sales: 904-239-9564
E-mail address: lineartradingsys@gmail.com

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